I live near the Alabama/Florida coastline. The rental market in the area has been red hot lately. I spoke with a long time condo owner down there the other day and he said that his condo has paid for itself every year for the last decade expect for the year the BP oil spill shut down the coastline. Even during the recession, he broke even.

I am interested in buying a low-end condo down there and then let it rent out without me using it any for myself. I would let a management company take care of the everyday headaches. Any revenue would go toward paying the mortgage, insurance, and fees. I wouldn't be looking to make income from it, only have it pay for itself for now. I would hold on to it for a while and just let the equity build up for future use. I am also considering building a large portfolio of condos and start managing the myself once I decide to get out of this downward spiral that has become the field of medicine.

Why don't you take a part-time job at one of the property management companies that rents out condos in the area so you can learn about your new line of work before you actually start doing it? Since you work in the field of medicine, you should have a good idea of the value of education.

Pajamas wrote:Why don't you take a part-time job at one of the property management companies that rents out condos in the area so you can learn about your new line of work before you actually start doing it? Since you work in the field of medicine, you should have a good idea of the value of education.

That would be a good idea if/when I decide to attempt to manage my own rental properties. For now, I'm just interested in having some real estate that pays for itself with very little day to day involvement from myself.

llessac15 wrote:I live near the Alabama/Florida coastline. The rental market in the area has been red hot lately. I spoke with a long time condo owner down there the other day and he said that his condo has paid for itself every year for the last decade expect for the year the BP oil spill shut down the coastline. Even during the recession, he broke even.

I am interested in buying a low-end condo down there and then let it rent out without me using it any for myself. I would let a management company take care of the everyday headaches. Any revenue would go toward paying the mortgage, insurance, and fees. I wouldn't be looking to make income from it, only have it pay for itself for now. I would hold on to it for a while and just let the equity build up for future use. I am also considering building a large portfolio of condos and start managing the myself once I decide to get out of this downward spiral that has become the field of medicine.

Thoughts?

Taking your numbers at face value, since you have given us basically nothing to work with. Say you put down 20% on a condo worth $100K with a 30 year mortgage. In 30 years, you will not owe anything on the condo. Like you said, the condo literally pays for itself each year; no gain or loss. Housing approximately keeps up with inflation over the long term. With 2% appreciation in your home's value, your investment will be worth $181K in 30 years. You will have turned $20K into $181K, which is a 7.6% return. How is this worth your time compared to investing in, say, a 70/30 portfolio with a similar expected return?

I bought a crack house duplex rental property 2 years ago. Really...you walked in and the walls were smoke stained from cooking...making drugs.

Bought it from $25K....put $14K into a rehab....and did a ton of work ourselves.

Turned it into a 35% cash on cash ROI in 8 months.....had $39K into the thing.

Three weeks ago...I told myself..."I'm sorta tired being a slumlord and dealing with people who don't care for my hard work, lie to me, and work the system....heck, I'm gonna put this thing on craigslist."

Did it...put it on CL for $83K and had 3 landlord offers the next day for all cash.

Will close on it next week....another poor soul hoping to make his millions just paid double what I had into the property.

The rental market is too hot...somebody is going to get burned buying rental properties at premiums.

I guess I'm not looking at it as a better ROI than index investing. I look at it as a way to have a cash-flow vehicle later in life without being fully dependent on my investment accounts. I'm not brave enough to open up a small business or smart enough to create some kind of passive income website. Also, as mentioned above, taking over the management of the condos later in life would give me something to do in retirement.

renue74 wrote:I bought a crack house duplex rental property 2 years ago. Really...you walked in and the walls were smoke stained from cooking...making drugs.

Bought it from $25K....put $14K into a rehab....and did a ton of work ourselves.

Turned it into a 35% cash on cash ROI in 8 months.....had $39K into the thing.

Three weeks ago...I told myself..."I'm sorta tired being a slumlord and dealing with people who don't care for my hard work, lie to me, and work the system....heck, I'm gonna put this thing on craigslist."

Did it...put it on CL for $83K and had 3 landlord offers the next day for all cash.

Will close on it next week....another poor soul hoping to make his millions just paid double what I had into the property.

The rental market is too hot...somebody is going to get burned buying rental properties at premiums.

Don't be that guy.

This is actually my biggest concern right now. Prices are so high in the area compared to what they were back a few years ago. Unless I can find a steal-of-a-deal, I will be paying a 'premium' for sure.

Being a landlord is a small business (unless it is a medium or large business) even if you hire someone to do most of the work. I don't understand why so many people seem to think it is such an easy and low-risk enterprise. Seems like the 2008-2009 financial crisis would have convinced more people otherwise. Blows my mind.

llessac15 wrote:I spoke with a long time condo owner down there the other day and he said that his condo has paid for itself every year for the last decade expect for the year the BP oil spill shut down the coastline.

You need to be careful.

Hurricane Ivan was in 2004 and hit that area really hard so you need to take that into account especially with a "low-end condo" that might not fare well in a hurricane.

My neighbor had just bought a condo there a few months before Ivan hit and the building was destroyed. I don't know all the details but there was not enough insurance to rebuild the condo. I recently asked them what ever happened about it and they have been making their mortgage payments all this time and they are hoping all the lawsuits will finally be settled this year so that the land can be sold while the market is still hot.

Not that I would recommend it but buying a REIT that has beach property would be very similar to what you are trying to do.

Being a landlord is a small business (unless it is a medium or large business) even if you hire someone to do most of the work. I don't understand why so many people seem to think it is such an easy and low-risk enterprise. Seems like the 2008-2009 financial crisis would have convinced more people otherwise. Blows my mind.

+1

But, but, but the late night infomercials promised me that all I had to do was to sit back and cash the checks!

llessac15 wrote:I guess I'm not looking at it as a better ROI than index investing. I look at it as a way to have a cash-flow vehicle later in life without being fully dependent on my investment accounts. I'm not brave enough to open up a small business or smart enough to create some kind of passive income website. Also, as mentioned above, taking over the management of the condos later in life would give me something to do in retirement.

The more work you put into it, the higher the ROI. Adding a management company means reducing ROI. Being a vacation area could mean you have lots of vacancy time, reducing ROI.

Why don't you want to be dependent on your investment accounts for cash flow? Getting a $10k check to live off of from Vanguard gives you the same spending power as a $10k check after the summer season from the management company. Vanguard isn't going to call and tell you that a renter just trashed the place and you're going to have to be off the market for a month while contractors spend $10k of your money fixing the place up because the renters gave them fake information and they have nobody to go after. Vanguard won't alert you that the town is planning to put in new water lines and the road is going to be accessible for 2 weeks, so now you have to cancel all of the rentals and forgo the rent money. But on the bright side, the management company still gets paid (by you) while this is going on.

Even with a property management company, you'll probably have to do a lot of legwork getting rentals via VRBO/AirBNB. I know a lot of people who rent in my area and I would say they get 2/3 of their rentals this way and 1/3 through the property management company (although the property management company typically gets a cut from all rentals, no matter the source). I've done VRBO before and its not particularly hard, but just be ready for every customer to try and nickle and dime you.

Also, buy the cheapest furnishings and supplies possible. Its amazing what people will steal.

I would talk to some other beach condo investors. Personally I co-own a Florida panhandle condo that was managed by a professional company. We did not break even until the mortgage was paid off. We keep it as it is close to family otherwise it would have been gone years ago as a bad investment.

Spent all of last week on the beach and spent many evenings thinking about this myself.

I spend at least 1 week straight at the beach, family and friends live close, and property is very inexpensive for what you get (esp compared to what I pay in SF and Austin)...

I'll be following this thread for any other experiences, but I'm pretty interested in purchasing a condo or two myself that ideally will be break even and pay for itself, but will also allow for myself and family to stay there whenever we want.

I know & have known quite a few that own condos in that area; that doesn't make me an expert. But I've have heard it discussed a fair amount. Since you live near there, you already know which areas are prone to attract which types of visitors. Wide difference between SanDestin, PCB, Ft Morgan, etc. Of course, the market will reflect some of that already.

As with much real estate, the secret is buying at the right price. Whether you break even or not may hinge on how much you leverage it. But buying when the market is hot as you say makes the challenge that much more difficult. Many/most of ones I've known used it for themselves, but not during peak season. I have known some that didn't rent outside family at all. Some held for decades, others just a few years. I've known several that raised kids & now years later are debating whether to pass to kids/grandkids or cash in. Some houses, some condos

Very few regret it, but I've consistently heard that it isn't a path to riches although a few lucky ones may find that.

However, building up a larger portfolio of condos may be a different story. I've not really known anyone who tried that but had casual acquaintance who sorta did. That is a whole other matter & not to be tried as an experiment.

Not much usable here maybe. I'd recommend patience. Research the area you're interested in. Find a management company that works in the area & get their insight. By all means talk to some who would be your "neighbors". Determine your level of $ commitment & run the numbers. Then wait on the right opportunity to open up

I built a home near Orlando, FL in 2013 and paid $195,000. I just closed on my home last month and after all fees walked away with $61,000. Easiest chunk of money I ever made. It was rented the whole time and I broke even. I had a great management company do everything else.

My point is not all real estate is bad and I am now thinking I should buy more properties and do the same thing.

Also, make sure you understand the terms of the deal. A friend's mom got suckered into buying somewhere near PCB. The rules that she is now tied to are insane. The unit has to be rented out X number of weeks per year or she's penalized. If the management company decides that she needs new appliances in the kitchen then she's on the hook for new appliances. There's also COA fees on top of the mortgage. Yes, the property management company takes care of the day to day, but after the mortgage, COA fees, property management fees, etc. all she's really getting is two or three free weeks a year in a beach condo.

kwarden13 wrote:
My point is not all real estate is bad and I am now thinking I should buy more properties and do the same thing.

+1
I bought a rental condo four years ago (not at the beach, but in an area now that is a hot market for both renting and selling) for $95,000 and put in $15,000 renovating it. It was appraised as is (before the renovation) at $115,000 so I feel like I broke even to start with. Not only do I make money on it
each month ($450), it's current value is $225,000 and still going up.

I don't like condos for living in or investing. HOA adds a HUGE risk over non-HOA properties. Wait until all roofs get replaced and you have a 70K assessment for the year, or the condo gets sued and it's 120K. Think such events are unusual or unlikely? think again.

We were down at Hwy 30A a few weeks ago and it got me to looking at rentals on-line at night. I was getting ready to get serious until I looked at the rental availability of the units------they were solidly booked from mid-May to mid-August, but were completely wide open thereafter. Not good. Additionally, they keep building more and more new units----the North side of the road is undeveloped. Poor rental history coupled with additional supply coming on the market didn't look like a good mix to me.

However, if I lived within 3-4 hrs of it and would use it a lot in the offseason, and then rent it during the high season, I could see it working. But for an investment, I don't see it.

Real estate in general is a fine asset class but it's difficult to imagine beachfront condos aren't fully valued right now. Wait for the next recession if you're going to do this. I live in Atlanta and I'd love to own a Florida panhandle beach condo for personal use, but every time I pull up Trulia when I'm down there (out of curiosity) I can't find anything reasonable.

Edit: The off-season is really nice in that area. Too cold to swim in November that far north but still very pleasant to visit. Renting during the summer and reserving for personal use in the off-season seems like a good compromise.

I bought a rental condo 7 years ago 3 blocks from the beach in SW Florida and it has worked out well so far. I manage it myself and rent seasonally to mostly repeat renters with a one month minimum. It is in a upscale area not known as a party town so almost no problems from renters. January through April is the high season but I have often found renters for the offseason at a greatly reduced rent. My wife and I use it approx. 2 weeks a year and we plan to use it more after I retire. We are able to get some rental property tax benefits including deducting our travel costs as we work on the condo when we are there. Be sure to factor in money for repairs and updating beds, TVs etc. on a regular basis. I would not recommend buying a vacation rental condo strictly as an investment but it might make sense if you enjoy the area and would use the condo some yourself.

kwarden13 wrote:I built a home near Orlando, FL in 2013 and paid $195,000. I just closed on my home last month and after all fees walked away with $61,000. Easiest chunk of money I ever made. It was rented the whole time and I broke even. I had a great management company do everything else.

My point is not all real estate is bad and I am now thinking I should buy more properties and do the same thing.

I went to Vegas last week and bet $10,000 on black. I doubled my money on the very next spin. Easiest chunk of money I ever made.

My point is not all gambling is bad and I am now thinking I should take a bigger percentage of my money to Vegas and do the same thing.

kwarden13 wrote:I built a home near Orlando, FL in 2013 and paid $195,000. I just closed on my home last month and after all fees walked away with $61,000. Easiest chunk of money I ever made. It was rented the whole time and I broke even. I had a great management company do everything else.

My point is not all real estate is bad and I am now thinking I should buy more properties and do the same thing.

I went to Vegas last week and bet $10,000 on black. I doubled my money on the very next spin. Easiest chunk of money I ever made.

My point is not all gambling is bad and I am now thinking I should take a bigger percentage of my money to Vegas and do the same thing.

Not a good analogy in the slightest.. but coming from a gambler - go big or go home

I just returned from a week of vacation in the Sarasota area and usually go there every year. The one thing that sticks out for me is how significantly man made stuff deteriorates in that climate. I would imagine general maintenance costs would be quite high and repetitive. It seems like a dwelling would be in a constant state of repair of some sort. I assume this is due to the humid, sea air and rage rain events.
My other concern would be escalating insurance costs.

Your condo makes you money until all the water lines in the building need to be replaced and you're in for a 65k assessment. Only takes one of those to wipe away years of returns. If you go beach, go detached.

Watch out for the HOA board. I bought a new and beautiful three-bedroom beachfront condo in South Padre Island in 2006 as a rental property, and everything was great until the board changed. A bunch of retirees who lived on site got on the board and started changing rules regarding rentals making it harder and harder for us rental owners. It was very hard and frustrating to deal with the board long distance.

What I would really want to do is buy an upscale unit (>$1,500,000) at my favorite condo. I would rent it out for most of the year and only stay there a total of 3-4 weekends a year. We could easily see ourselves staying in one of those condos for 2-3 months at a time later in life. However, by then, they'll be 20 years old and probably not seem so nice.

What I would really want to do is buy an upscale unit (>$1,500,000) at my favorite condo. I would rent it out for most of the year and only stay there a total of 3-4 weekends a year. We could easily see ourselves staying in one of those condos for 2-3 months at a time later in life. However, by then, they'll be 20 years old and probably not seem so nice.

I guess I need to just stick with my day job.

Is that a typo? $1.5 million? I thought you were at first interested in buying a low-end rental and having it "pay for itself" by using a management company.

How much do you have to charge in rent to break-even on a $1.5 million condo?

sdsailing wrote:I don't like condos for living in or investing. HOA adds a HUGE risk over non-HOA properties. Wait until all roofs get replaced and you have a 70K assessment for the year, or the condo gets sued and it's 120K. Think such events are unusual or unlikely? think again.

Buy SFRs.

I was thinking along those lines. If you want to assemble a portfolio of condos, why not just buy a small building? Associations can be a pain to deal with and you have really no control over costs.

What I would really want to do is buy an upscale unit (>$1,500,000) at my favorite condo. I would rent it out for most of the year and only stay there a total of 3-4 weekends a year. We could easily see ourselves staying in one of those condos for 2-3 months at a time later in life. However, by then, they'll be 20 years old and probably not seem so nice.

I guess I need to just stick with my day job.

Is that a typo? $1.5 million? I thought you were at first interested in buying a low-end rental and having it "pay for itself" by using a management company.

How much do you have to charge in rent to break-even on a $1.5 million condo?

I guess I should have more clearly stated that owning a high-end condo is my dream one day. Not now. I want to test the waters with a low end unit and then slowly add to that to gain more experience. My goal closer to retirement is to own a condo or beach house that I would one day want to spend lots of time in. Right now I can barely make it to the beach 3-4 weekends each year.